Appeal details
Counselvise Citation
[2009] 115 COUNSELVISE.COM (IT) 1058 (ITAT-DELHI)
Assessee PAN
Bench
Appeal Number
Duration Of Justice
2 year(s) 9 month(s) 10 day(s)
Appellant
Respondent
Appeal Type
Income Tax Appeal
Pronouncement Date
30-10-2009
Appeal Filed By
Assessee
Order Result
Allowed
Bench Allotted
G
Assessment Year
2002-2003
Appeal Filed On
19-01-2007
Judgement Text
IN THE INCOME TAX APPELLATE TRIBUNAL (DELHI BENCH G, NEW DELHI) BEFORE SHRI G.E. VEERABHADRAPPA, VICE PRESIDENT A ND SHRI A.D. JAIN JUDICIAL MEMBER ITA NOS.346, 4069, 4070, 4071, 4072, 4073, 4074, 4075, 4076, 4077, 4078, 4079, 4080 & 4081/DEL./2007 (ASSESSMENT YEAR : 2002-03) PRIDE FORAMER S.A.S., VS. ACIT, CIRCLE 1, C/O S.P. PURI & CO., DEHRADUN 4/18, ASAF ALI ROAD, NEW DELHI-110 062 (PAN/GIR NO. AACCP1572) AS AGENT OF : MR. JACQUES DUSSAU, MR. JEAN DESTEPHE, MR. PETER JAMES WARRIES, MR. JEAN P. PERUS, MR. PATRICK CABRERA, MR. MICHAEL DEAN FERTITTA, MR. BRUNO PLUCHON, MR. GEORGES POTTER, MR. COLIN HEATON, MR. HORACE BORSATO, MR. JEAN CASTELAIN, MR. JEAN M. BERG & MR. JOHN MILLSAP AND I.T.A. NOS.4051, 4054 & 4055/DEL./2007 (ASSESSMENT YEAR : 2002-03) DCIT, CIRCLE 1, VS. PRIDE FORAMER S.A.S., DEHRADUN NEW DELHI AS AGENT OF : MR. JACQUES DUSSAU, MR. JEAN DESTEPHE & MR. JEAN M. BERG (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI S.P.PURI/V. PURI & BALDEV RAJ, C AS, REVENUE BY : MISS Y.K. KAKKAR, SR.DR I.T.A.NOS.346,4069-4081/DEL./2007 & 4051, 4054 & 4055/D/2007 (A.Y. : 2002-03) 2 ORDER PER A.D. JAIN, JM THESE 14 APPEALS BY PRIDE FORAMER S.A.S., TREATED A S AGENT OF THIRTEEN EXPATRIATE EMPLOYEES/PERSONNEL AND 3 APPEALS BY THE REVENUE FOR ASSESSMENT YEAR 2002-03, ARISE OUT OF THE ORDER OF THE CIT(A)-I, DEHRADUN. COMMON ISSUES BEING INVOLVED IN ALL THESE APPEALS, THEY ARE BEING DISPOSED OF BY THIS COMPOSITE ORDER. 2. THE COMMON GROUNDS OF APPEAL TAKEN IN PRIDE FORA MERS APPEALS ARE AS UNDER: 1.1 THE LEARNED LD. COMMISSIONER OF INCOME-TAX (A PPEALS) ERRED IN LAW IN UPHOLDING THE ORDER OF THE ASSESSING OFFI CER IN ASSUMING JURISDICTION TO INITIATE PROCEEDINGS U/S 1 63 OF THE I.T. ACT, 1961 ON THE BASIS OF INVALID NOTICE AND CONSEQ UENTLY PASSING AN ORDER HOLDING THE APPELLANT AS AGENT OF THE NAMED PERSONNEL, WHEN THE ENTIRE PROCEEDINGS ARE VITIATED AS NO SEPARATE NOTICES INDIVIDUALLY FOR EACH OF THE NAMED PERSONNEL WERE SERVED, HOLDING THE APPELLANT AS THEIR AGENT. 1.2 THE LEARNED LD. COMMISSIONER OF INCOME-TAX ( APPEALS) OUGHT TO HAVE RESTRICTED THE HOLDING OF STATUTORY AGENT O F THE APPELLANT OF THE FIRST NAMED PERSON, ASSUMING THAT THE NOTICE WAS APPLICABLE TO MR. JACQUES DUSSAU. 2. THE LEARNED LD. COMMISSIONER OF INCOME-TAX (APPE ALS) ERRED IN LAW AND ON FACTS BY UPHOLDING THE ORDER OF THE A SSESSING OFFICER HOLDING THE APPELLANT AS STATUTORY AGENT OF NAMED PERSONNEL WITHOUT FULFILLING THE REQUIRED PRECONDIT ION TO ASSUME JURISDICTION U/S 163(1) OF THE I.T.A. ACT, 1961. 3. THE LEARNED LD. COMMISSIONER OF INCOME-TAX (APPE ALS) ERRED IN LAW IN UPHOLDING THE ORDER OF THE ASSESSING OFFI CER WHEN THE GROUNDS FOR ASSUMING JURISDICTION AS PER SHOW CAUSE NOTICE AND THE ORDER PASSED U/S 163 ARE DIFFERENT. I.T.A.NOS.346,4069-4081/DEL./2007 & 4051, 4054 & 4055/D/2007 (A.Y. : 2002-03) 3 4. THE LEARNED LD. COMMISSIONER OF INCOME-TAX (APPE ALS) ERRED IN LAW IN UPHOLDING THE ORDER OF THE ASSESSING OFFI CER U/S 163(1) ON THE SUBJECTIVE AND ARBITRARY PRESUMPTION THAT THE APPELLANT WAS THE DEEMED EMPLOYER, WHEN THE NAMED P ERSONNEL WERE NEITHER THE EMPLOYEES OF, NOR ANY REMUNERATION WAS PAID TO THEM BY THE APPELLANT UNDER ANY AGREEMENT, WHETH ER DIRECTLY, OR INDIRECTLY. 5. THE LEARNED LD. COMMISSIONER OF INCOME-TAX (APPE ALS) ERRED IN LAW IN UPHOLDING THE ORDER OF THE ASSESSING OFFI CER U/S 163(1) HOLDING THE APPELLANT AS AGENT OF THE NAMED PERSONNEL, WHEN NO TAX WAS LEVIABLE ON THE PERSONNEL AS PER AR TICLES 16(1) AND (2) OF THE DTAA BETWEEN INDIA AND FRANCE AND TH EREFORE, THE ORDER U/S 163 IS UNWARRANTED AND BAD IN LAW AND IS LIABLE TO BE QUASHED. 6. THE LEARNED LD. COMMISSIONER OF INCOME-TAX (APPE ALS) ERRED IN LAW IN UPHOLDING THE ORDER OF THE ASSESSING OFFI CER U/S 163(1) HOLDING THE APPELLANT AS AGENT OF THE NAMED PERSONNEL, WHEN NO TAX WAS PAYABLE BY NAMED PERSONNEL WHOSE ST AY IN INDIA WAS FOR A PERIOD OF LESS THAN 90 DAYS AND THE WERE EXEMPT FROM PAYMENT OF TAXES U/S 10(6)(VIII) OF THE I.T.AC T, 1961. THE COMMON GROUNDS RAISED BY THE DEPARTMENT IN ITS APPEALS ARE AS FOLLOWS: 1. THE LD. COMMISSIONER OF INCOME-TAX (APPEALS) ER RED ON FACTS AND IN LAW IN DIRECTING THE ASSESSING OFFICER NOT TO TA X THE INCOME OF THE ASSESSEE TECHNICIAN IN SPITE OF THE FACT THAT PAYME NTS ARE BEING MADE OUT OF PE IN INDIA AND THEREFORE, THE THREE CONDITI ONS OF THE ARTICLE 16 OF THE DTAA BETWEEN INDIA AND FRANCE ARE NOT BEING CUMULATIVELY FULFILLED. UNDER IDENTICAL FACTS, THE HONBLE ITAT , F BENCH, DELHI HAS UPHELD THIS VIEW IN THE CASE OF M/S ENSCO MARIT IME LTD. VS. DCIT, REPORTED IN 91 ITR 459. 2. THE LD. COMMISSIONER OF INCOME-TAX (APPEALS) HAS ERRED IN LAW AND ON FACTS IN DIRECTING THE ASSESSING OFFICER TO DELETE THE INTEREST CHARGED U/S 234B OF THE INCOME-TAX ACT, 1961. 3. THE ORDER OF THE LD. COMMISSIONER OF INCOME-TAX (APPEALS) BE SET ASIDE AND THAT OF THE ASSESSING OFFICER BE RESTORED . I.T.A.NOS.346,4069-4081/DEL./2007 & 4051, 4054 & 4055/D/2007 (A.Y. : 2002-03) 4 3. THE FIRST ISSUE RAISED BEFORE US IS AGAINST THE ACTION OF THE CIT(A) IN UPHOLDING THE ORDER OF THE ASSESSING OFFICER, PASSE D ON 29.03.2005 UNDER SECTION 163(1) READ WITH SECTION 149(3) OF THE I.T. ACT, 1961, TREATING PRIDE FORAMER AS AN AGENT OF THE EXPATRIATE EMPLOYEES/TEC HNICIANS/PERSONNEL WORKING ON ITS JACKUP RIG, PENNSYLVANIA. PRIDE FORA MER IS A FRENCH COMPANY. IT ENTERED INTO A CONTRACT WITH ONGC ON 2 2.1.99. UNDER THIS CONTRACT, PRIDE FORAMER HAD BEEN CARRYING OUT DRILL ING SERVICES FOR ONGC. FOR THESE DRILLING SERVICES, PRIDE FORAMER EMPLOYED ITS OWN PERSONNEL, AS WELL AS PERSONNEL OBTAINED FROM ITS ASSOCIATE COMPA NY, I.E., M/S PRIDE FORASOL. PRIDE FORAMER ENTERED INTO A TECHNICAL ASS ISTANCE AGREEMENT DATED 1.4.1999 WITH PRIDE FORASOL. UNDER THIS AGREEMENT, PRIDE FORAMER OBTAINED THE SERVICES OF PERSONNEL OF PRIDE FORASOL. ON PAYM ENT OF TECHNICAL FEES TO PRIDE FORASOL. SUCH TECHNICAL FEE WAS OFFERED FOR TAX UNDER PROTEST. IT WAS TAXED BY THE DEPARTMENT AT A NET PROFIT RATE OF 10% , AS FEE FOR TECHNICAL SERVICES. IN ACCORDANCE WITH THE AGREEMENT BETWEEN THE TWO COMPANIES, PRIDE FORASOL WAS TO REMAIN THE EMPLOYER OF THE EXP ATRIATES DEPLOYED TO PRIDE FORAMER. THE ASSESSING OFFICER TREATED PRIDE FORAMER AS AN AGENT OF THE EXPATRIATE EMPLOYEES/PERSONNEL AND MADE ASSESSM ENT UNDER SECTION 163 OF THE ACT VIDE ORDER DATED 29.3.2005. 4. BY VIRTUE OF A NOTICE UNDER SECTION 148 OF THE A CT, PRIDE FORAMER WAS PUT TO EXPLAIN AS TO WHY IT BE NOT TREATED AS AN AG ENT OF THE EXPATRIATE PERSONNEL. PRIDE FORAMER SUBMITTED THAT THERE WAS N O NEXUS BETWEEN IT AND THE PERSONNEL, NOR HAD ANY PAYMENT BEEN MADE BY PRI DE FORAMER TO THEM; THAT AS PER THE DTAA BETWEEN INDIA AND FRANCE, ALL THE PERSONNEL WHOSE STAY IN INDIA DID NOT EXCEED 183 DAYS, WERE EXEMPT FROM PAYMENT OF TAX; THAT THEREFORE, SECTION 163(1) OF THE ACT COULD NOT BE INVOKED, SINCE IT WAS I.T.A.NOS.346,4069-4081/DEL./2007 & 4051, 4054 & 4055/D/2007 (A.Y. : 2002-03) 5 NOT APPLICABLE; AND THAT THIS HAD ALSO BEEN HELD BY THE HONBLE ALLAHABAD HIGH COURT FOR ASSESSMENT YEAR 1984-85. 5. THE ASSESSING OFFICER, HOWEVER, DID NOT AGREE WI TH THE AFORESAID CONTENTIONS OF PRIDE FORAMER. IT WAS OBSERVED THAT AS PER SECTION 163(1) OF THE ACT, AN AGENT, IN RELATION TO A NON-RESIDENT, INCLUDES ANY PERSON IN INDIA WHO IS EMPLOYED BY OR ON BEHALF OF THE NON-RESIDENT , OR HAS ANY BUSINESS CONNECTION WITH THE NON-RESIDENT, OR FROM OR THROUG H WHOM THE NON-RESIDENT IS IN RECEIPT OF ANY INCOME, WHETHER DIRECTLY, OR I NDIRECTLY, OR WHO IS THE TRUSTEE OF THE NON-RESIDENT; THAT AGENT WITHIN TH E MEANING OF SECTION 163(1) ALSO INCLUDES ANY OTHER PERSON WHO, WHETHER A RESID ENT, OR A NON-RESIDENT, HAS ACQUIRED BY MEANS OF A TRANSFER, A CAPITAL ASSE T IN INDIA; THAT AS PER THE CONTRACT EXECUTED BY PRIDE FORAMER WITH ONGC, IT WA S THE CONTRACTOR WHO AGREED TO DEPLOY THE PERSONNEL; THAT THE NON-RESIDE NT COMPANY ENTERED INTO A CONTRACT WITH PRIDE FORASOL, WHICH WAS AN ASSOCIATE ENTERPRISE AS DEFINED IN SECTION 92A OF THE ACT; THAT AS PER CLAUSE 12 OF TH E SAID AGREEMENT, THE DAILY RATE OF FEES IN FRENCH FRANKS PAYABLE IN FRANCE, WH ICH WAS TO BE PAYABLE BY PRIDE FORAMER TO PRIDE FORASOL, WAS THE FIXED RATE FEES INDICATED IN APPENDIX A TO THE SAID AGREEMENT, WHICH WAS INCLUSI VE OF THE REMUNERATION AND STATUTORY CONTRIBUTIONS AND TAXES, IF ANY, AND PAYABLE TO THE DEPLOYED EXPATRIATES BY PRIDE FORASOL; THAT FURTHER, AS PER CLAUSE 14 OF THE AGREEMENT, IF IN THE OPINION OF THE OPERATION BASED MANAGER OF PRIDE FORAMER, ANY OF THE DEPLOYED PERSONNEL FAILED TO PERFORM THE JOB AL LOTTED TO THEM IN A SKILLFUL AND WORKMAN-LIKE MANNER AND THE DEPLOYMENT WAS NOT APPROVED BY THEIR CLIENT, SUCH PERSONNEL WERE TO BE DEPORTED BACK TO PRIDE FORASOL AT THEIR RISK; THAT FROM THIS, IT WAS EVIDENT THAT IT WAS PRIDE FO RAMER WHO WAS THE REAL EMPLOYER OF THE DEPLOYED PERSONNEL AND NOT PRIDE FO RASOL, AS THE AUTHORITY I.T.A.NOS.346,4069-4081/DEL./2007 & 4051, 4054 & 4055/D/2007 (A.Y. : 2002-03) 6 TO INSTRUCT THE WORKERS LAY WITH THE USER, AS MENTI ONED IN THE OECD COMMENTARY; THAT AS PRIDE FORAMER. WAS THE REAL EMP LOYER OF THE DEPLOYED PERSONNEL, IT HAD OFFERED ITS INCOME UNDER SECTION 44BB OF THE ACT AND IT HAD ALSO BEEN ASSESSED UNDER SECTION 44BB OF THE ACT; T HAT APROPOS PRIDE FORAMERS PLEA THAT THE STAY OF THESE DEPLOYED PERS ONNEL IN INDIA WAS FOR LESS THAN THE STATUTORY PERIOD OF 183 DAYS, ARTICLE 16 O F THE DTAA BETWEEN INDIA AND FRANCE, WHICH HAD BEEN REFERRED TO SUPPORT THIS PLEA, WAS TO GOVERN THE TAXABILITY OF THE INCOME OF THE DEPLOYED PERSONNEL; THAT AS SUCH, THE INCOME OF PRIDE FORAMER WAS ASSESSABLE IN FRANCE, I.E., TH E FIRST CONTRACTING STATE ONLY IF ALL THE THREE CONDITIONS CONTAINED IN ARTIC LE 16 OF THE INDO-FRENCH DTAA WERE SATISFIED CUMULATIVELY; THAT THESE CONDIT IONS WERE THAT THE REMUNERATION DERIVED BY A RESIDENT OF A CONTRACTING STATE IN RESPECT OF AN EMPLOYMENT EXERCISED IN THE OTHER CONTRACTING STATE SHALL BE TAXABLE ONLY IN THE FIRST MENTIONED CONTRACTING STATE, IF THE RESID ENT WAS PRESENT IN THE OTHER CONTRACTING STATE FOR A PERIOD, OR PERIODS, NOT EXC EEDING, IN THE AGGREGATE, 183 DAYS IN THE RELEVANT FINANCIAL YEAR; AND THE RE MUNERATION IS PAID BY, OR ON BEHALF, AN EMPLOYER WHO IS NOT A RESIDENT OF THE OTHER CONTACTING STATE, AND THE REMUNERATION IS NOT BORNE BY A PERMANENT ES TABLISHMENT OR A FIXED BASE WHICH THE EMPLOYER HAS IN THE OTHER CONTRACTIN G STATE; THAT AS IN PRIDE FORAMERS CASE, THE REIMBURSEMENT WAS BEING PAID OU T OF THE PERMANENT ESTABLISHMENT OF PRIDE FORAMER, THE INCOME OF THE E XPATRIATES/DEPLOYED PERSONNEL, DEPUTED TO INDIA, WAS LIABLE TO BE TAXE D; THAT THE DECISION OF THE TRIBUNAL IN THE CASE OF SEDCO FOREX INTERNATIONAL DRILLING INC. VS. ACIT, 58 ITD 177 (DEL.) SUPPORTED THIS PROPOSITION; AND T HAT THEREFORE, THE INCOME OF ALL THE TECHNICIANS/EMPLOYEES/DEPLOYED PERSONNEL WAS LIABLE TO BE BROUGHT TO TAX IN INDIA. THUS, OBSERVING THAT PRIDE FORAME R WAS LIABLE TO BE TAXED ON I.T.A.NOS.346,4069-4081/DEL./2007 & 4051, 4054 & 4055/D/2007 (A.Y. : 2002-03) 7 THE INCOME OF SUCH TECHNICIANS/EMPLOYEES/DEPLOYED P ERSONNEL AND TO FILE THEIR INCOME-TAX RETURNS, THE ASSESSING OFFICER HEL D PRIDE FORAMER AS AN AGENT OF ALL THE EXPATRIATE EMPLOYEES/ PERSONNEL UN DER SECTION 163(1) OF THE ACT. 6. BY VIRTUE OF THE IMPUGNED ORDER, THE CIT(A) DISM ISSED THE APPEAL FILED BY PRIDE FORAMER. IT WAS HELD THAT AS PER SE CTION 163(1)(C) OF THE ACT, AGENT INCLUDES ANY PERSON IN INDIA FROM OR THROUG H WHOM THE NON-RESIDENT IS IN RECEIPT OF ANY INCOME, WHETHER DIRECTLY, OR I NDIRECTLY; THAT IN PRIDE FORAMERS CASE, THE MAIN CONTRACT OF PRIDE FORAMER WAS WITH ONGC; THAT IT WAS AS A RESULT OF THIS CONTRACT, THAT ONGC WAS MAK ING PAYMENT TO PRIDE FORAMER AND PRIDE FORAMER, IN TURN, WAS MAKING PAYM ENT TO ITS SISTER CONCERN, I.E., PRIDE FORASOL WHO, IN THEIR TURN, WE RE MAKING PAYMENTS TO THE EXPATRIATES; THAT IT WAS AN ADMITTED FACT THAT THES E EXPATRIATES WERE RENDERING SERVICES IN INDIA AND WERE UNDER THE DIRECT CONTROL OF PRIDE FORAMER; THAT THE EXPATRIATES WERE DIRECTLY COMING FROM THEIR COUNTRY OF RESIDENCE TO THE JACKUP RIG AND WERE GOING BACK TO THEIR COUNTRY OF RESIDENCE FROM THERE ONLY; THAT IT IS A PRACTICE IN THE OIL INDUSTRY, THAT TAX LIABILITY OF THE EXPATRIATES, IF ANY, IS TO BE BORNE BY THE COMPANY EMPLOYING THEM; THAT THE ASSESSING OFFICER HAD THREE OPTIONS, I.E., EITHER TO TREAT ON GC AS THE AGENT OF THE EXPATRIATES, OR TO TREAT PRIDE FORAMER AS THE AGENT OF THE EXPATRIATES, OR TO TREAT PRIDE FORASOL, THE EMPLOYER, AS THE AGENT OF THESE EXPATRIATES; THAT PRIDE FORASOL HAVING NO ESTABLISHMENT IN INDIA, THERE WAS NO POINT IN TREATING PRIDE FORASOL AS THE AGENT OF THE EXPATRIATES; THAT THE E XPATRIATES WERE WORKING ON THE RIG OWNED BY PRIDE FORAMER AND WERE UNDER THE D IRECT SUPERVISION AND CONTROL OF PRIDE FORAMER; THAT PRIDE FORAMER WAS MA KING PAYMENT TO PRIDE FORASOL IN THE FORM OF TECHNICAL FEE; THAT AS SUCH, EASIEST COURSE OF THE I.T.A.NOS.346,4069-4081/DEL./2007 & 4051, 4054 & 4055/D/2007 (A.Y. : 2002-03) 8 ASSESSING OFFICER WAS TO TREAT PRIDE FORAMER AS THE AGENT OF THE EXPATRIATES; THAT IN CASE ANY TAX LIABILITY AROSE IN INDIA, PRID E FORAMER COULD WITHHOLD THE SAME FROM THE PAYMENTS TO BE MADE TO PRIDE FORASOL; AND THAT THEREFORE, IN HIS [THE CIT(A)S] OPINION, THE ASSESSING OFFICER H AD A DISCRETION TO CHOOSE EITHER ONGC OR PRIDE FORAMER AS AN AGENT OF THE EXP ATRIATES AND THE ASSESSING OFFICER HAD EXERCISED THIS DISCRETION IN TREATING PRIDE FORAMER AS SUCH AGENT. 7. IT IS BEING AGGRIEVED BY THE ABOVE SAID ORDER OF THE CIT(A), THAT PRIDE FORAMER IS IN FURTHER APPEAL BEFORE US. 8. THE LD. COUNSEL FOR PRIDE FORAMER HAS CONTENDED THAT THE CIT(A) HAS ERRED IN UPHOLDING THE ASSESSMENT ORDER WHEREBY PRI DE FORAMER WAS WRONGLY HELD AS THE AGENT OF THE EXPATRIATE PERSONN EL; THAT THE CIT(A) FAILED TO CONSIDER THAT THE ASSESSING OFFICER HAD PROCEEDE D ON A WRONG AND ARBITRARY PRESUMPTION THAT PRIDE FORAMER WAS THE DE EMED EMPLOYER OF THE EXPATRIATE PERSONNEL, WHEREAS THESE PERSONNEL WERE NEITHER THE EMPLOYEES OF PRIDE FORAMER, NOR WAS ANY REMUNERATION PAID TO THE M BY PRIDE FORAMER. ATTENTION HAS BEEN DRAWN TO PAGES 1 & 2 OF THE PRID E FORAMERS PAPER BOOK (PB, FOR SHORT), WHICH IS A COPY OF THE SHOW-CAUS E NOTICE DATED 3.3.2005 ISSUED BY THE ASSESSING OFFICER. IT HAS BEEN CONTE NDED THAT IT WAS BY WAY OF AN ERRONEOUS ASSUMPTION THAT THE ASSESSING OFFICER CONCLUDED THAT THE EXPATRIATE PERSONNEL WERE PRIDE FORAMERS EMPLOYEES AND THAT PRIDE FORAMER HAD PAID THEM SALARY. ATTENTION HAS BEEN D RAWN TO PB 3, WHICH IS A COPY OF THE NOTICE ISSUED UNDER SECTION 148 OF THE ACT, REGARDING 27 PERSONNEL. IT HAS BEEN CONTENDED THAT THIS NOTICE IS NOT VALID; AND THAT THE ASSESSING OFFICER, UNDER THE LAW, OUGHT TO HAVE ISS UED SEPARATE NOTICES TO ALL I.T.A.NOS.346,4069-4081/DEL./2007 & 4051, 4054 & 4055/D/2007 (A.Y. : 2002-03) 9 THE PERSONNEL. TAKING US THROUGH PB 4, WHICH IS A COPY OF PRIDE FORAMERS LETTER DATED 28.4.2005 TO THE ASSESSING OFFICER, IT HAS BEEN POINTED OUT THAT THE REASONS RECORDED FOR THE REOPENING WERE SPECIFI CALLY REQUESTED FOR. ATTENTION HAS THEN BEEN DRAWN TO PB 5 & 6, WHICH IS A COPY OF THE REASONS RECORDED FOR INITIATING THE REOPENING PROCEEDINGS. IT HAS BEEN PLEADED THAT THE REASONS ARE NOTHING BUT MERE ASSUMPTIONS; THAT PRIDE FORAMER WAS WRONGLY HELD TO BE AN AGENT OF THE EXPATRIATE PERSO NNEL AND WAS WRONGLY HELD LIABLE FOR TAX; THAT A CHART HAD BEEN STATED T O BE ENCLOSED; THAT HOWEVER, NO CHART WAS EVER SUPPLIED; THAT FURTHER, IN THE RE ASONS RECORDED, IT HAS BEEN MENTIONED THAT RETURN HAD NOT BEEN FILED; THAT THIS IS A CONCLUSION AND NOT AT ALL A REASON; THAT THE REASONS WERE GIVEN TO PRIDE FORAMER ON 12.12.2006; THAT PRIDE FORAMER FILED A DETAILED REPLY/OBJECTION S THERETO, A COPY WHEREOF IS TO BE FOUND AT PB 7-15. IT HAS THEN BEEN ASSERT ED THAT UNDISPUTEDLY, PRIDE FORAMER HAD A PERMANENT ESTABLISHMENT REGARDING THE RECEIPT FROM ONGC, REGARDING DRILLING OPERATIONS; THAT PRIDE FORASOL D ID NOT HAVE A PERMANENT ESTABLISHMENT IN INDIA; THAT THEY WERE TAXED FEE F OR TECHNICAL SERVICES REGARDING PAYMENTS MADE BY PRIDE FORAMER TO THE EMP LOYEES OF PRIDE FORASOL. THE LD. COUNSEL HAS TAKEN US TO THE FTS A GREEMENT, A COPY WHEREOF IS TO BE FOUND AT PAGES PB 10-13. IT HAS BE EN CONTENDED THAT THE ASSESSING OFFICER ISSUED SHOW CAUSE NOTICE (PB 1-2) REFERRING TO THE PROVISIONS OF SECTION 163 READ WITH SECTION 149(3) OF THE ACT; THAT BUSINESS CONNECTION UNDER SECTION 163(1)(B) OF THE ACT WAS NEITHER BEFORE THE ASSESSING OFFICER, NOR BEFORE THE CIT(A); THAT IN T HE CASES OF 14 EXPATRIATE PERSONNEL, NO TAX HAS BEEN LEVIED, WHEREAS IN THE C ASES OF 13 PERSONNEL, TAXES HAS BEEN LEVIED; THAT IT WAS WITH REFERENCE T O SEDCO FOREX DRILLING INC. (SUPRA), THAT THE ASSESSING OFFICER HELD PRID E FORAMER NOT ENTITLED TO I.T.A.NOS.346,4069-4081/DEL./2007 & 4051, 4054 & 4055/D/2007 (A.Y. : 2002-03) 10 EXEMPTION UNDER ARTICLE 16 OF THE INDO-FRENCH DTAA; THAT THE CIT(A) STATED THAT IT WAS PRIDE FORASOL AND NOT PRIDE FORA MER WHO WAS THE EMPLOYER OF THE EXPATRIATE PERSONNEL; THAT HOWEVER, HE BROUG HT IN AN ENTIRELY NEW GROUND, I.E., SECTION 163(1)(C) OF THE ACT; THAT TH E CIT(A) OBSERVED THAT ONGC PAID FEE TO PRIDE FORAMER FOR DRILLING, PRIDE FORAMER PAID FEE FOR TECHNICAL SERVICES TO PRIDE FORASOL AND PRIDE FORAS OL PAID SALARY TO ITS EMPLOYEES; THAT THE ASSESSING OFFICER DID NOT SPECI FY AS UNDER TO WHICH CLAUSE OF SECTION 163(1) OF THE ACT, PRIDE FORAMER FELL; THAT THE NOTICE UNDER SECTION 163 COULD NOT BE ISSUED REGARDING ALL THE 2 7 PERSONNEL TOGETHER; THAT THE CAUSE OF ACTION WAS AN INDIVIDUAL CAUSE OF ACTI ON; THAT IN EACH CASE THE FACTS ARE DIFFERENT; THAT WHEREAS THE CIT(A) MADE O UT A CASE OF INDIRECT NEXUS, THERE IS NO SUCH CONCEPT UNDER THE LAW; THA T IT IS A LIVE NEXUS WHICH MUST BE PRESENT; THAT IN OTHER WORDS, THE PERSON SO UGHT TO BE TREATED AS AN AGENT MUST BE PROVED TO BE A CONDUIT, OR THE INCOME SHOULD BE ABLE TO BE TRACED TO HIM; THAT FURTHER, THE GROUND TAKEN BY TH E ASSESSING OFFICER IN THE SHOW-CAUSE NOTICE IS NOT THE SAME AS THE ONE ON WHI CH THE ASSESSMENT ORDER WAS PASSED; THAT THE CIT(A), ON THE OTHER HAND, MAD E OUT AN ENTIRELY NEW CASE WHILE INVOKING THE PROVISIONS OF SECTION 163(1 )(C) OF THE ACT; THAT IN CASE NO TAX IS PAYABLE, THERE IS NO CASE FOR AGENCY ; THAT IN I.T.A. NOS.4069, 4080, 4070, 4071 & 4078, NO TAX IS PAYABLE, HAVING BEEN DELETED BY THE LD. COMMISSIONER OF INCOME-TAX (APPEALS), THOUGH CONDIT IONALLY, SUCH CONDITION NOT BEING AS PER THE INDO- FRENCH DTAA; A ND THAT IN 14 CASES, THE INCOME WAS ASSESSED AT NIL, SHOWING THAT NO TAX WAS PAYABLE (PB 62-87 REFERRED TO). THE LD. COUNSEL FOR PRIDE FORAMER HA S THUS REQUESTED THAT THE ORDER OF THE CIT(A) BE CANCELLED IN VIEW OF THESE F ACTS AND CIRCUMSTANCES OF THE CASE. I.T.A.NOS.346,4069-4081/DEL./2007 & 4051, 4054 & 4055/D/2007 (A.Y. : 2002-03) 11 9. ON THE OTHER HAND, THE LD.DR HAS STAUNCHLY SUPPO RTED THE IMPUGNED ORDER. BESIDES THE ORAL SUBMISSIONS, WRITTEN SUBMI SSIONS HAVE BEEN PLACED ON RECORD. IT HAS BEEN CONTENDED ON BEHALF OF THE DEPARTMENT THAT IN HAZARA SINGH VS. HAZARA SINGH, 160 ITR 746 (P&H), EVEN TH E EXTREME CASE OF RECEIPT OF MONEY FROM UNDISCLOSED SOURCES WAS HELD TO BE TAXABLE UNDER SECTIONS 160/163 OF THE ACT; THAT ON THE BASIS OF S ECTION 5 READ WITH SECTION 9(1)(II) OF THE ACT, THE OFF PERIOD SALARY OF THE E XPATRIATE PERSONNEL WAS TAXABLE IN INDIA, AS IT DID NOT MEET THE CRITERIA L AID DOWN IN ARTICLE 16(2) OF THE INDO-FRENCH DTAA, BESIDES THE FACT THAT THE PER MANENT ESTABLISHMENT OF PRIDE FORAMER EXISTED IN INDIA, WHEN READ WITH CLAU SES 1-3 OF THE AGREEMENT DATED 1.4.99 BETWEEN PRIDE FORAMER AND PRIDE FORASO L READ WITH THE RELEVANT CLAUSE OF THE AGREEMENT ENTERED INTO BETWEEN PRIDE FORAMER AND ONGC; THAT THE PROVISIONS OF SECTION 9(1)(II) OF THE ACT ARE D EEMING PROVISIONS; THAT PRIDE FORAMER HAS ALSO NOT GIVEN DETAILS OF THE CON TRACT OF EMPLOYMENT; THAT THE NON-RESIDENT COMPANY HAD MADE THE SERVICES OF T HE EXPATRIATE PERSONNEL AVAILABLE TO PRIDE FORAMER WITHIN THE TAXABLE TERRI TORY; THAT PRIDE FORAMER DID NOT TAKE THE EXPATRIATE PERSONNEL AS THEIR EMPL OYEES, NOR WERE THEY PAID ANY SALARY BY PRIDE FORAMER; THAT THE PERSONNEL DID NOT WORK MERELY UNDER THE CONTROL OF PRIDE FORAMER, RATHER, BOTH PRIDE FORAMER, AS WELL AS THE NON-RESIDENT COMPANY HAD CONTROL OVER THEM; THAT BO TH THE COMPANIES HAD THE AUTHORITY TO CHANGE THE COMPOSITION AND THE MEM BERS OF THE PERSONNEL FORCE; THAT AS PER CLAUSE 12 OF THE SAID AGREEMENT, THE DAILY RATE OF FEES IN FRENCH FRANKS PAYABLE IN FRANCE, WHICH WAS TO BE PA YABLE BY PRIDE FORAMER TO PRIDE FORASOL, WAS THE FIXED RATE FEES INDICATED IN APPENDIX A TO THE SAID AGREEMENT, WHICH WAS INCLUSIVE OF THE REMUNERATION AND STATUTORY CONTRIBUTIONS AND TAXES, IF ANY, AND PAYABLE TO THE DEPLOYED EXPATRIATES BY I.T.A.NOS.346,4069-4081/DEL./2007 & 4051, 4054 & 4055/D/2007 (A.Y. : 2002-03) 12 PRIDE FORASOL, WAS PAID BY PRIDE FORAMER TO THE EXP ATRIATE PERSONNEL FOR SERVICES RENDERED IN INDIA AND IT WAS LIABLE FOR TA XATION IN INDIA AS PER SECTION 9(1)(II) READ WITH THE EXPLANATION THERETO READ WITH THE ARTICLES OF THE INDO-FRENCH DTAA; THAT FURTHER, AS PER CLAUSE 1 4 OF THE AGREEMENT, IF IN THE OPINION OF THE OPERATION BASED MANAGER OF PRIDE FORAMER, ANY OF THE DEPLOYED PERSONNEL FAILED TO PERFORM THE JOB ALLOTT ED TO THEM IN A SKILLFUL AND WORKMAN-LIKE MANNER AND THE DEPLOYMENT WAS NOT APPR OVED BY THEIR CLIENT, SUCH PERSONNEL WERE TO BE DEPORTED BACK TO PRIDE FO RASOL AT THEIR RISK; THAT FROM THIS, IT WAS EVIDENT THAT IT WAS PRIDE FORAMER , WHO WAS THE REAL EMPLOYER OF THE DEPLOYED PERSONNEL AND NOT PRIDE FO RASOL, AS THE AUTHORITY TO INSTRUCT THE WORKERS LAY WITH THE USER, AS MENTI ONED IN THE OECD COMMENTARY; THAT AS PRIDE FORAMER WAS THE REAL EMPL OYER OF THE DEPLOYED PERSONNEL, IT HAD OFFERED ITS INCOME UNDER SECTION 44BB OF THE ACT AND IT HAD ALSO BEEN ASSESSED UNDER SECTION 44BB OF THE ACT; T HAT THEREFORE, THE EMPLOYER OF THE EXPATRIATE PERSONNEL, IN SUBSTANCE, WAS PRIDE FORAMER, WHO WAS RIGHTLY HELD AS AGENT OF THE EXPATRIATE PERSONN EL; THAT THUS, THE SALARY WAS TAXABLE IN INDIA AND RIGHTLY TAXED BY THE ASSES SING OFFICER UNDER SECTION 163(2) READ WITH SECTION 148 OF THE ACT; THAT IT IS THE ACTUAL USER WHICH IS DETERMINATIVE OF THE ISSUE AS TO WHO THE EMPLOYER I S; THAT ONGC CANNOT BE THE EMPLOYER AS PER THE UNDERTAKING GIVEN IN THE CO NTRACT BY THE CONTRACTOR/PRIDE FORAMER; THAT AS PER THE TERMS OF THE AGREEMENT, THE CONTRACTOR SHALL BE RESPONSIBLE FOR PAYING ALL TAXE S AND FILING RETURNS; THAT THE TERMS OF AGREEMENT BETWEEN PRIDE FORAMER AND ONGC L EAD TO THE INEVITABLE CONCLUSION THAT IT IS PRIDE FORAMER WHO IS THE EMPL OYER, SINCE PRIDE FORAMER HAS ITSELF UNDERTAKEN AND AGREED TO PERFORM ALL THE FUNCTIONS OF A STATUTORY AGENT OF ONGC, AS ENVISAGED UNDER SECTION 163 OF TH E ACT; THAT THE I.T.A.NOS.346,4069-4081/DEL./2007 & 4051, 4054 & 4055/D/2007 (A.Y. : 2002-03) 13 EXPATRIATE PERSONNEL WORKING WITH PRIDE FORAMER CAN NOT BE SAID TO BE EMPLOYEES OF ONGC AND THEY ARE ELIGIBLE FOR EXEMPTI ON UNDER SECTION 10(6)(VIIA) OF THE ACT; THAT BESIDES, THE PERSONNEL WERE WORKING FOR THE FOREIGN COMPANY IN A PROJECT IN INDIA AND THAT THEY WERE HENCE COVERED BY SECTION 9(1)(II) OF THE ACT; THAT FURTHER, NO EVIDE NCE HAS BEEN FILED BY PRIDE FORAMER TO SHOW THAT THE EXPATRIATE PERSONNEL WERE SUBJECTED TO FRENCH TAXATION; THAT UNDER SECTION 5 OF THE ACT, ALL RESI DENTS AND NON-RESIDENTS ARE CHARGEABLE IN RESPECT OF INCOME WHICH ACCRUES OR IS DEEMED TO ACCRUE IN INDIA, OR IS RECEIVED IN INDIA; THAT NON-RESIDENTS WHO ARE NOT ASSESSABLE IN RESPECT OF INCOME ACCRUING AND RECEIVED ABROAD ARE RENDERED CHARGEABLE UNDER SECTION 5(2)(B) OF THE ACT IN RESPECT OF INCO ME DEEMED BY SECTION 9 OF THE ACT TO ACCRUE IN INDIA; THAT SECTION 9 DEALS WI TH CERTAIN CATEGORIES/HEADS OF INCOME TO ACCRUE IN INDIA AND IT HAS NO APPLICAT ION IN CASES WHERE INCOME ACTUALLY ACCRUES IN INDIA; THAT SIMILARLY, SECTION 9 ALSO DOES NOT APPLY IN CASES WHERE THE INCOME IS RECEIVED IN INDIA; THAT T HEREFORE, IF THE INCOME IS NOT RECEIVED IN INDIA, THAT NON-RESIDENT WOULD NOT BE CHARGEABLE TO TAX UPON IT, UNLESS IT ACCRUES OR IS DEEMED TO ACCRUE IN IND IA; AND THAT IN THIS VIEW OF THE MATTER, THERE IS NO FORCE OR MERIT IN THE APPEA LS OF PRIDE FORAMER, WHICH DESERVE TO BE DISMISSED. 10. WE HAVE HEARD BOTH THE PARTIES AND HAVE PERUSED THE MATERIAL ON RECORD WITH REGARD TO THIS ISSUE. THE QUESTION BEF ORE US IS AS TO WHETHER THE CIT(A) WAS CORRECT IN UPHOLDING THE ASSESSING OFFIC ERS ORDER PASSED U/S 163 OF THE ACT. THE ASSESSING OFFICER TAXED 13 EXP ATRIATE PERSONNEL, WHEREAS IT WAS NOT SO DONE IN THE CASE OF 14 OTHERS . IN DOING SO, THE ASSESSING OFFICER HELD THE DECISION IN SEDCO FOREX DRILLING INC. (SUPRA) TO BE APPLICABLE. PRIDE FORAMER WAS HELD NOT ENTITLED TO EXEMPTION UNDER I.T.A.NOS.346,4069-4081/DEL./2007 & 4051, 4054 & 4055/D/2007 (A.Y. : 2002-03) 14 ARTICLE 16 OF THE INDO-FRENCH DTAA. PRIDE FORAMER WAS HELD TO BE THE EMPLOYER OF THE EXPATRIATE PERSONNEL, HOLDING IT TO BE THE DEEMED EMPLOYER OF ALL THE 27 EXPATRIATE PERSONNEL, THAT IT WAS PRI DE FORAMER WHO PAID REMUNERATION TO THESE PERSONNEL, THAT THE REMUNERAT ION WAS PAID AND BORNE BY THE PERMANENT ESTABLISHMENT OF PRIDE FORAMER IN INDIA AND THAT THE CONDITIONS OF SECTION 163 OF THE ACT WERE FULFILLED . 11. THE CIT(A), ON THE OTHER HAND, HELD THAT CONDIT IONS (A), (B) AND (C) CONTAINED IN SECTION 163 OF THE ACT ARE NOT APPLICA BLE TO THE CASE AND THAT IT IS SECTION 163(1)(C) WHICH IS APPLICABLE. IT WAS H ELD THAT AS PER THE PROVISIONS OF SECTION 163(1)(C), AGENT INCLUDES A NY PERSON IN INDIA FROM OR THROUGH WHOM THE NON-RESIDENT IS IN RECEIPT OF ANY INCOME, WHETHER DIRECTLY, OR INDIRECTLY; THAT THE MAIN CONTRACT OF PRIDE FORA MER WAS WITH ONGC; THAT IT WAS AS A RESULT OF THIS CONTRACT, THAT ONGC WAS MAKING PAYMENT TO PRIDE FORAMER, PRIDE FORAMER WAS MAKING PAYMENT TO PRIDE FORASOL, ITS SISTER CONCERN AND PRIDE FORASOL WAS MAKING PAYMENTS TO TH E EXPATRIATES; THAT THE EXPATRIATE PERSONNEL WERE RENDERING SERVICES IN IND IA AND WERE UNDER THE DIRECT CONTROL OF PRIDE FORAMER; THAT THE TAX OF TH ESE PERSONNEL WAS TO BE BORNE BY THE COMPANY EMPLOYING THEM; THAT THE PERSO NNEL WERE WORKING FOR AND WERE UNDER THE DIRECT SUPERVISION AND CONTROL O F PRIDE FORAMER; THAT PRIDE FORAMER WAS MAKING PAYMENT TO PRIDE FORASOL I N THE FORM OF TECHNICAL FEE; THAT IT WAS, THEREFORE, THAT THE EASIEST COURS E FOR THE ASSESSING OFFICER TO RECOVER THE TAX OF THE EXPATRIATE PERSONNEL WAS TO TREAT PRIDE FORAMER AS AGENT OF THESE PERSONNEL; THAT IF ANY TAX LIABILITY OF THESE PERSONNEL AROSE IN INDIA, PRIDE FORAMER COULD WITHHOLD THE SAME FROM T HE PAYMENTS TO BE MADE TO PRIDE FORASOL; THAT THEREFORE, THE ASSESSING OFF ICER HAD THE DISCRETION TO CHOOSE EITHER ONGC OR PRIDE FORAMER AS AGENT OF THE SE PERSONNEL AND THE I.T.A.NOS.346,4069-4081/DEL./2007 & 4051, 4054 & 4055/D/2007 (A.Y. : 2002-03) 15 ASSESSING OFFICER HAD CORRECTLY EXERCISED THIS DISC RETION IN TREATING PRIDE FORAMER AS SUCH AGENT OF THE EXPATRIATE PERSONNEL. 12. WE DO NOT FIND OURSELVES IN AGREEMENT WITH THE REASONING ADOPTED BY THE CIT(A). THE CONDITIONS LAID DOWN IN SECTION 16 3(1) OF THE ACT ARE CLEAR. AS PER SECTION 163(1)(C) OF THE ACT, AGENT INCLUD ES ANY PERSON IN INDIA FROM OR THROUGH WHOM THE NON-RESIDENT IS IN RECEIPT OF ANY INCOME, WHETHER DIRECTLY, OR INDIRECTLY. IN THE PRESENT CASE, THE EXPATRIATE PERSONNEL DID NOT RECEIVE ANY INCOME DIRECTLY OR INDIRECTLY FROM PRID E FORAMER. IN FACT, NO LIVE NEXUS STANDS ESTABLISHED BETWEEN PRIDE FORAMER AND THE INCOME EARNED BY THE EXPATRIATE PERSONNEL. POWER UNDER SECTION 1 63(1) OF THE ACT COULD BE ASSUMED ONLY ON ESTABLISHING A LIVE CONNECTION BETW EEN PRIDE FORAMER AND THE NON-RESIDENT. THE ASSESSING OFFICER WAS NOT ABL E TO ESTABLISH ANY SUCH NEXUS. THE CIT(A) WAS OF THE VIEW THAT THE PAYMENT OF FEES FOR TECHNICAL SERVICES RECEIVED BY PRIDE FORASOL, THE UNDENIABLE EMPLOYER OF THE EXPATRIATE PERSONNEL, INDIRECTLY COVERED THE PAYMENT OF THE IN COME TO THE PERSONNEL. A NEXUS WAS THUS, IN THE VIEW OF THE LD. COMMISSIONER OF INCOME-TAX (APPEALS), EXISTING, WHICH WAS AS PER THE REQUIREME NTS OF THE PROVISIONS OF SECTION 163(1)(C) OF THE ACT. HOWEVER, WE DO NOT F IND THIS TO BE CORRECT. SO AS TO ATTRACT THE PROVISIONS OF SECTION 163(1)(C) O F THE ACT, A LIVE PAYMENT NEXUS IN THE ROUTING OF THE INCOME NEEDS MUST BE ES TABLISHED. HERE, ON THE OTHER HAND, WHAT HAS BEEN TAKEN IS A MERE ECONOMIC NEXUS, WHICH DOES NOT PROVIDE POWER UNDER SECTION 163 OF THE ACT TO HOLD PRIDE FORAMER AS AGENT OF THE EXPATRIATE PERSONNEL. PERTINENTLY, THE LD. COMMISSIONER OF INCOME- TAX (APPEALS), ON THE BASIS OF THE TECHNICAL ASSIST ANCE AGREEMENT, AGREED WITH PRIDE FORAMER THAT IT WAS PRIDE FORASOL, I.E., THE SISTER CONCERN OF PRIDE FORAMER, WHICH WAS THE ACTUAL EMPLOYER OF THE EXPAT RIATE PERSONNEL. THE I.T.A.NOS.346,4069-4081/DEL./2007 & 4051, 4054 & 4055/D/2007 (A.Y. : 2002-03) 16 DEPARTMENT HAS NOT RAISED ANY ISSUE AGAINST SUCH FI NDING OF THE COMMISSIONER OF INCOME-TAX (APPEALS). TO STRESS TH E POINT, IT WOULD BE APPROPRIATE TO REPRODUCE HEREUNDER, CLAUSES 10 & 12 OF THE TECHNICAL ASSISTANCE AGREEMENT BETWEEN PRIDE FORAMER AND PRID E FORASOL: 10 PRIDE FORASOL SHALL REMAIN THE EMPLOYER OF THE EXPATRIATES SO DEPLOYED TO PRIDE FORAMER AND THIS TECHNICAL ASS ISTANCE AGREEMENT SHALL NOT CONSTITUTE AS SECONDMENT OR AS ASSIGNMENT OF EMPLOYMENT OF SUCH PERSONNEL TO PRIDE FORAMER DURIN G HE PERIOD OF THIS AGREEMENT. 12. THE DAILY RATE OF FEES IN FRF PAYABLE IN FRANC E WHICH WILL BE PAYABLE BY PRIDE FORAMER TO PRIDE FORASOL AS THE FI XED RATE FEES INDICATED IN APPENDIX-A, WHICH IS ALL INCLUSIV E OF THE REMUNERATION AND STATUTORY CONTRIBUTIONS, TAXES IF ANY AND PAYABLE TO THE DEPLOYED EXPATRIATES BY PRIDE FORASOL. 13. THUS, THE ASSESSEE NEVER HAD ANY LIEN ON THE PE RSONNEL, AS PER THE TERMS OF TECHNICAL ASSISTANCE AGREEMENT. 14. IT HAS BEEN HELD OUT BY THE DEPARTMENT THAT THE PERSONNEL WORKING WITH PRIDE FORAMER CANNOT BE SAID TO BE THE EMPLOYEES OF THE ONGC, THAT THEY ARE ALSO NOT ELIGIBLE FOR EXEMPTION UNDER SECTION 1 0(6)(VIIA) OF THE ACT AND THAT SINCE THEY WERE WORKING FOR THE FOREIGN COMPAN Y IN A PROJECT IN INDIA, THEY ARE COVERED BY SECTION 9(1)(II) OF THE ACT. I N FACT, THERE IS NO DISPUTE TO THIS PROPOSITION. AS RIGHTLY PUT ON BEHALF OF PRID E FORAMER, IF ONGC CANNOT BE HELD AS AGENT OF THE EXPATRIATE PERSONNEL WORKIN G WITH ONGC UNDER THE TECHNICAL ASSISTANCE AGREEMENT, THE PERSONNEL WORKI NG UNDER THE TECHNICAL ASSISTANCE AGREEMENT, OBVIOUSLY, CANNOT BE HELD TO BE THE EMPLOYEES OF PRIDE FORAMER. I.T.A.NOS.346,4069-4081/DEL./2007 & 4051, 4054 & 4055/D/2007 (A.Y. : 2002-03) 17 15. APROPOS THE DEPARTMENTS CONTENTION THAT THE TE RMS OF THE CONTRACT BETWEEN ONGC AND PRIDE FORAMER SHOW THAT PRIDE FORA MER WAS CONTRACTUALLY LIABLE AND IT INDEMNIFIED ONGC AGAINS T PAYMENT OF ALL TAXES BY THEIR SUB-CONTRACTORS AND THEIR EMPLOYEES AND BY SUCH ACT, PRIDE FORAMER ACCEPTED THE POSITION OF AGENT OF THE PERSONNEL, FI RSTLY, UNDENIABLY, THERE WAS A PRIVITY OF CONTRACT BETWEEN ONGC AND PRIDE FORAME R. SO FAR AS REGARDS THE PROVIDING OF INDEMNITY BY PRIDE FORAMER IN FAVO UR OF ONGC, THIS WAS ESSENTIAL FOR PRIDE FORAMER TO PROVIDE AS A CONTRAC TOR TO ONGC, THERE BEING NO PRIVITY OF CONTRACT BETWEEN ONGC AND THE SUB-CON TRACTORS OR THEIR EMPLOYEES. THIS ARGUMENT, THEREFORE, CARRIES NO FO RCE. MOREOVER, THE CONDITIONS CONTAINED IN SECTION 163(1) OF THE ACT A RE ESSENTIALLY THE PRE- REQUISITE THE SINE QUA NON FOR HOLDING ANY PERSON AS AGENT, WHICH IN THE PRESENT CASE HAS NOT COME ABOUT. MOREOVER, IT IS A MATTER OF RECORD THAT THE TERMS OF THE CONTRACT WERE NEVER AN ISSUE BEFORE TH E AUTHORITIES BELOW. FURTHERMORE, AN INDEMNITY CLAUSE IN AN AGREEMENT PE R SE IPSO FACTO DOES NOT BRING TO THE FORE THE HOLDING OF THE INDEMNIFIER ON BEHALF OF AGENT UNDER SECTION 163 OF THE ACT. 16. THE LD. COMMISSIONER OF INCOME-TAX (APPEALS) HA S CLEARLY ERRED IN HOLDING THAT THE EASIEST COURSE FOR THE ASESSING O FFICER TO RECOVER THE TAX OF THE EXPATRIATES WAS TO TREAT THE ASSESSEE AS AGENT OF THESE TECHNICIANS. WITHOUT DOUBT, THE PROVISIONS OF SECTION 163(1) DO NOT ENVISAGE ANY SUCH EASIEST COURSE. IT IS TRITE LAW THAT THE LEGISLA TURE CHOOSES ITS WORDS WITH UTMOST CARE. IN ORDER TO HOLD A PERSON AS AGENT, I T IS A SINE QUA-NON THAT THE CONDITIONS LAID DOWN IN THE SECTION BE FULFILLED. THEREFORE, THERE IS NO ROOM FOR SUCH OBSERVATION AS MADE BY THE LD. COMMISSIONE R OF INCOME-TAX (APPEALS). THE ASSESSING OFFICER DID NOT HAVE ANY DISCRETION TO CHOOSE I.T.A.NOS.346,4069-4081/DEL./2007 & 4051, 4054 & 4055/D/2007 (A.Y. : 2002-03) 18 EITHER ONGC OR PRIDE FORAMER AS AGENT OF THE EXPATR IATE PERSONNEL. TO REITERATE, PRIDE FORAMER HAD OBTAINED THE SERVICES OF THE EXPATRIATE PERSONNEL FORM PRIDE FORASOL UNDER A TECHNICAL ASSISTANCE AGR EEMENT DATED 1.4.1999 AGAINST PAYMENT OF TECHNICAL FEES. THE TECHNICAL F EES WERE PAID BY PRIDE FORAMER IN FRANCE TO PRIDE FORASOL. UNDER THE AGRE EMENT, THE PERSONNEL REMAINED THE EMPLOYEES OF PRIDE FORASOL. IT WAS PR IDE FORASOL WHO PAID THEIR REMUNERATION OUTSIDE INDIA. SUCH PAYMENT WAS SPECIFICALLY PROVIDED FOR UNDER THE TECHNICAL ASSISTANCE AGREEMENT VIDE C LAUSES 10 AND 12 (SUPRA) THEREOF. IF THE PERFORMANCE OF ANY OF THE PERSONNEL WAS FOUND BY ONGC TO BE UNSATISFACTORY, SUCH PERSONNEL WAS TO BE DEPORTED TO THEIR EMPLOYER IN FRANCE, I.E., PRIDE FORASOL, IN TERMS O F CLAUSE 14 OF THE AGREEMENT, WHICH DEALS WITH UNSATISFACTORY PERFORM ANCE. THIS CLAUSE STATES THAT IF IN THE OPINION OF THE OPERATIONS BAS ED MANAGER OF PRIDE FORAMER, ANY OF THE DEPLOYED PERSONNEL FAILS TO PER FORM THE JOB ALLOTTED TO THEM IN A DILIGENT, SKILLFUL AND WORKMAN-LIKE MANNE R, OR IF THERE DEPLOYMENT OR PERFORMANCE IS NOT APPROVED BY THEIR CLIENT, SUC H PERSONNEL SHALL BE DEPORTED TO PRIDE FORASOL AT THEIR RISK AND COST. PRIDE FORAMER HAS NOT BEEN ESTABLISHED TO HAVE EXERCISED ANY CONTROL ON THE EN GAGEMENT OR DISMISSAL OF THE PERSONNEL PROVIDED BY PRIDE FORASOL. IN FACT, I N CASE OF UNSATISFACTORY PERFORMANCE BY SUCH PERSONNEL, PRIDE FORAMER COULD ONLY MAKE A REQUEST FOR DEPORTING THEM BACK TO THEIR EMPLOYER, PRIDE FO RASOL, FOR TAKING APPROPRIATE ACTION. IN TERMS OF ARTICLE 13 OF THE INDO-FRENCH DTAA, PRIDE FORASOL WAS ASSESSED TO TAX ON THE FEES FOR TECHNIC AL SERVICES AT THE RATE OF 10 PER CENT ON THE GROSS RECEIPT. NO PERSONNEL OF PRI DE FORASOL OVERSTAYED THE STATUTORY LIMIT OF 183 DAYS IN INDIA. AS SUCH, IN TERMS OF ARTICLE 16 OF THE INDO-FRENCH DTAA, THEY WERE NOT LIABLE TO TAX IN IN DIA. WHEN IN FINANCIAL I.T.A.NOS.346,4069-4081/DEL./2007 & 4051, 4054 & 4055/D/2007 (A.Y. : 2002-03) 19 YEARS 2002-03 & 03-04, TWO PERSONNEL OF PRIDE FORAS OL STAYED IN INDIA BEYOND THE STATUTORY PERIOD OF 183 DAYS, THEIR TAX WAS DEDUCTED/PAID BY PRIDE FORASOL AND THEIR TAX RETURNS WERE FILED ACCO MPANIED BY SALARY CERTIFICATE ISSUED BY PRIDE FORASOL. THE ANNUAL RE TURNS OF THE PERSONNEL WHO EXCEEDED 183 DAYS OF STAY IN INDIA, WERE FILED BY P RIDE FORASOL IN THE CASE OF ITS PERSONNEL/EMPLOYEES. THESE RETURNS WERE ASSESS ED AND INTEREST FOR LATE PAYMENT WAS CHARGED, WHICH WAS DULY PAID. SO FAR A S REGARDS PRIDE FORAMER, IT WAS NOT EMPLOYED FOR OR ON BEHALF OF TH E PERSONNEL. IT DID NOT HAVE ANY BUSINESS CONNECTION WITH THE PERSONNEL, NO R DID THE PERSONNEL RECEIVE ANY INCOME DIRECTLY, OR INDIRECTLY FROM PRI DE FORAMER. SINCE NO REMUNERATION WAS PAID BY PRIDE FORAMER, THERE WAS N O QUESTION OF ANY SALARY HAVING BEEN PAID OR BORNE BY ITS PERMANENT E STABLISHMENT IN INDIA. THERE WAS NO EMPLOYER-EMPLOYEE RELATIONSHIP BETWEEN PRIDE FORAMER AND THE EXPATRIATE PERSONNEL. PRIDE FORAMER DID NOT EMP LOY THE PERSONNEL UNDER ANY SEPARATE DEPLOYMENT AGREEMENT AS ITS EMPLOYEES. PRIDE FORAMER DID NOT HAVE ANY AUTHORITY TO CONCLUDE CONTRACTS ON BEHALF OF ANY OF THE 27 PERSONNEL. IT DID NOT HAVE ANY AUTHORITY TO MAINTA IN STOCK OF GOODS FROM WHICH IT COULD REGULARLY DELIVER GOODS ON BEHALF OF ANY OF THE 27 PERSONNEL. IT DID NOT SECURE ORDERS IN INDIA MAINLY OR WHOLLY FOR THE 27 PERSONNEL. AS SUCH, THERE WAS NO BUSINESS CONNECTION ESTABLISHED AND THE PROVISIONS OF EXPLANATION (2) TO SECTION 9(1)(I) OF THE ACT WERE NOT ATTRACTED. THE PRE- CONDITIONS REQUIRED FOR THE PROVISIONS OF SECTION 1 63(1) OF THE ACT WERE ABSENT. THE MERE FACT THAT THE PERSONNEL OF PRIDE F ORASOL PERFORMED TECHNICAL SERVICES ON THE JACKUP RIG OF PRIDE FORA MER DOES NOT AMOUNT TO A BUSINESS CONNECTION, SO AS TO MAKE PRIDE FORAMER L IABLE TO BE TREATED AS A STATUTORY AGENT OF THE EXPATRIATE PERSONNEL. THE EN TIRE AMOUNT OF THE I.T.A.NOS.346,4069-4081/DEL./2007 & 4051, 4054 & 4055/D/2007 (A.Y. : 2002-03) 20 TECHNICAL SERVICES FEES FOR DEPLOYMENT OF ITS PERSO NNEL BY PRIDE FORASOL WAS TAXED IN THE HANDS OF PRIDE FORASOL, AS FEES FOR T ECHNICAL SERVICES. THE PERSONNEL OF PRIDE FORASOL ALSO CANNOT BE SAID TO H AVE RECEIVED ANY INCOME FROM PRIDE FORAMER EVEN INDIRECTLY. INDIRECTLY W OULD APPLY TO A DIRECT NEXUS BETWEEN PRIDE FORAMER AND THE PERSONNEL, SO F AR AS REGARDS THE PAYMENT. MERELY BECAUSE PRIDE FORASOL CHARGED FEES FOR RENDERING TECHNICAL ASSISTANCE THROUGH ITS PERSONNEL, TO WHOM THE SALAR Y WAS PAID BY THEIR EMPLOYER, I.E., PRIDE FORASOL, THIS WOULD NOT BRING PRIDE FORAMER WITHIN THE SCOPE OF ANY INDIRECT PAYMENT OF SALARY TO THE EXPA TRIATE PERSONNEL. IT WAS PRIDE FORASOL, THEIR EMPLOYER, WHO PAID THE SALARY TO THE PERSONNEL AND SUCH SALARY CANNOT IN ANY MANNER BE SAID TO HAVE BEEN PA ID INDIRECTLY BY PRIDE FORAMER. IT IS RELEVANT THAT THE EXPATRIATE PERSON NEL WERE NOT PRIVY TO THE CONTRACT BETWEEN PRIDE FORAMER AND PRIDE FORASOL. HAD THEY BEEN PRIVY TO SUCH CONTRACT, ON THE OTHER HAND, THE SITUATION WOU LD HAVE BEEN OTHERWISE. 17. NOW, COMING TO THE CASE LAWS CITED ON BEHALF OF THE DEPARTMENT FOR THE PROPOSITION THAT IT IS PRIDE FORAMER AND NOT PR IDE FORASOL, WHO IS THE ACTUAL EMPLOYER OF THE EXPATRIATE PERSONNEL, THE DE PARTMENT HAS SOUGHT TO RELY ON AT&S INDIA P. LTD., IN RE, 287 ITR 421 (A AR) WHEREIN, IN THE FACTS OF THAT CASE IT WAS HELD THAT UNDER THE AGREE MENT, THE ASSESSEE WAS REQUIRED TO COMPENSATE AT&S AUSTINE FOR ALL COSTS W HICH HAD DIRECTLY OR INDIRECTLY ARISEN FROM SECONDMENT OF PERSONNEL AND THAT COMPENSATION WAS NOT LIMITED TO SALARY, BONUS, BENEFITS, PERSONAL TR AVEL, ETC.; THAT THE PAYMENTS UNDER THE AGREEMENT WERE NOT A MERE REIMBURSEMENT O F THE SALARIES OF THE SECONDED EMPLOYEES; AND THAT THE ORDER OF AT&S, AUS TINE WAS NOT THAT OF A MERE EMPLOYMENT AGENT; AND THAT IN EFFECT, THE SECO NDED PERSONNEL REMAINED THE EMPLOYEES OF AT&S, AUSTINE AND THE ASSESSEE WAS NOT THEIR EMPLOYER. I.T.A.NOS.346,4069-4081/DEL./2007 & 4051, 4054 & 4055/D/2007 (A.Y. : 2002-03) 21 THE FACTS HEREIN, AS DISCUSSED ABOVE, ARE ENTIRELY DISSIMILAR. THEREFORE, THE DEPARTMENT CANNOT DERIVE ANY HELP FROM THIS DECISIO N. 18. RELIANCE HAS THEN BEEN SOUGHT TO BE PLACED ON DIT (INTERNATIONAL TAXATION) VS. MORGAN STANLEY & CO. INC., 292 ITR 4 16 (SC). IN THAT CASE, A US COMPANY, MORGAN STANLEY & CO, USA OBTAINED SUPPO RT SERVICES FROM INDIAN MORGAN STANLEY SERVICES ADVANTAGE PVT. LTD. THE US COMPANY PROVIDED STEWARDS AND DEPUTATIONISTS AS EMPLOYEES O F THE INDIAN COMPANY. THE LIEN OF THE EMPLOYEES WAS RETAINED BY THE US CO MPANY. IT WAS IN THESE FACTS THAT IT WAS HELD THAT THE INDIAN COMPANY DID NOT BECOME THE EMPLOYER OF THE DEPUTATIONISTS. CLEARLY, AGAIN, THE FACTS O F THE PRESENT CASE ARE AT TOTAL VARIANCE WITH THOSE OF MORGAN STANLEY (SUPRA), AS DISCUSSED HEREINBEFORE. IT WAS HELD IN THAT CASE BY THE HONBLE SUPREME COU RT, INTER ALIA, THAT A DEPUTATIONIST HAS A LIEN ON HIS EMPLOYMENT WITH THE AMERICAN CO., AND THAT AS LONG AS THE LIEN REMAINS WITH THE AMERICAN CO., THE SAID COMPANY RETAINS CONTROL OVER THE DEPUTATIONISTS TERMS OF EMPLOYMEN T. EVIDENTLY, IN THE CASE BEFORE US, THERE IS NO SUCH FACT-SITUATION. HERE, T HE PERSONNEL OF PRIDE FORASOL WERE DEPLOYED TO WORK FOR PRIDE FORAMER ON PRIDE FORAMERS RIG IN INDIA. PRIDE FORASOL, AS DWELT UPON HEREINABOVE, W AS THEIR EMPLOYER. THAT BEING SO, MORGAN STANLEY (SUPRA) HAS NO APPLICATI ON HERETO. 19. APROPOS RELIANCE ON ITO VS. NAGARAJUNA, 16 IT D 393 (DEL.) AND ITO VS. ONGC AS AGENT OF MR. B.I. ALEXENDRICH & OT HERS RENDERED IN INCOME-TAX APPEAL NO. 9552/DEL./90, FOR ASSESSMENT YEARS 1984-85 AND 1986-87, THESE CASES DO NOT APPLY HERE, SINCE THE I SSUE OF EXEMPTION FROM TAX OF SALARY UNDER SECTION 10(6)(VIIA) OF THE ACT WAS NOT AT ALL AN ISSUE BEFORE THE AUTHORITIES BELOW, NOR IS IT SO BEFORE U S. I.T.A.NOS.346,4069-4081/DEL./2007 & 4051, 4054 & 4055/D/2007 (A.Y. : 2002-03) 22 20. FOR THE PROPOSITION OF PRIDE FORAMER HAVIN G ALLEGEDLY ACCEPTED ITS POSITION AS AGENT OF THE EXPATRIATE PERSONNEL SINCE IT HAD INDEMNIFIED ONGC AGAINST PAYMENT OF ALL TAXES BY THE SUB-CONTRACTORS AND THEIR EMPLOYEES, RELIANCE HAS BEEN PLACED BY THE DEPARTMENT ON J.M. BAXI & CO. VS. DDIT (MUM.), 117 ITD 131 (MUM.) (SB). THEREIN, IT IS S EEN, IT WAS AS PER THE TERMS OF THE AGREEMENT ITSELF, THAT IT WAS NOT DISP UTED THAT THE ASSESSEE WAS THE AGENT OF THE NON-RESIDENTS. IN THE CASE BEFORE US, ON THE OTHER HAND, PRIDE FORAMER HAS, AT EVERY STAGE, DISPUTED BEING T REATED AS AN AGENT OF THE EXPATRIATE PERSONNEL, RATHER THAN IT BEING THAT IN THE AGREEMENT ITSELF, PRIDE FORAMER ACCEPTED THE POSITION AS AGENT OF THE PERSO NNEL. THE DEPARTMENT SEEKS TO DRAW AID FROM THE INDEMNIFICATION CLAUSE B ETWEEN PRIDE FORAMER AND THE ONGC, WHICH CLAUSE, AS DELIBERATED UPON IN THE PRECEDING PORTION OF THIS ORDER, DOES NOT ENABLE THE DEPARTMENT TO TR EAT PRIDE FORAMER AS SUCH AGENT. 21. THE DEPARTMENT HAS ALSO SOUGHT TO RELY ON GUJA RAT FERTILIZERS CO. LTD. VS. ITO, 27 ITD 252 (GUJ.). THERE, A FOREIGN COMP ANY LENT THE SERVICES OF THEIR EMPLOYEES TO THE ASSESSEE DURING THE PERIOD O F THEIR STAY IN INDIA. LIVING ALLOWANCE BY WAY OF DAILY ALLOWANCE WAS PAID BY THE ASSESSEE , WHO ALSO AGREED TO BEAR THE TAXES. THE EMPLOYEES EXECU TED A POWER OF ATTORNEY IN FAVOUR OF THE ASSESSEE TO APPEAR, REPRESENT AND SETTLE ALL TAXES AND ASSESSMENTS. THE INCOME-TAX RETURNS WERE FILED BY THE ASSESSEE ON BEHALF OF THE EMPLOYEES. IN THESE FACTS, THE ASSESSEE WAS HE LD TO BE THE AGENT OF THE NON-RESIDENT. ONCE AGAIN, THESE ARE NOT THE FACTS BEFORE US AND, THEREFORE, THIS CASE IS ALSO NOT APPLICABLE HERE. 22. THE DEPARTMENT HAS, FOR THE PROPOSITION THAT TH E PAYMENTS OF FEE BY PRIDE FORAMER TO PRIDE FORASOL IS COVERED UNDER SEC TION 163(1) OF THE ACT, AS I.T.A.NOS.346,4069-4081/DEL./2007 & 4051, 4054 & 4055/D/2007 (A.Y. : 2002-03) 23 INDIRECT PAYMENTS OF SALARY TO THE EXPATRIATE PERSO NNEL, RELIED ON CIT, KERALA VS. COCHIN CO. PVT. LTD., 104 ITR 655 (KER. ), WHEREIN A SWISS COMPANY GRANTED A LOAN TO A US COMPANY. THE US COM PANY IN TURN GRANTED THE SAME LOAN ON THE SAME INTEREST TO THE ASSESSEE. THE PAYMENT OF INTEREST BY THE ASSESSEE TO THE US COMPANY WAS ROUTED THROUG H THE SWISS COMPANY. THIS WAS HELD TO BE INDIRECT PAYMENT BY THE ASSESSE E TO THE SWISS COMPANY. HOWEVER, ONCE AGAIN, WE DO NOT SEE AS TO HOW THIS D ECISION IS APPLICABLE TO THE FACTS OF THE PRESENT CASE. AS DISCUSSED, HEREIN , NO LIVE LINK BETWEEN PRIDE FORAMER AND THE PERSONNEL STANDS ESTABLISHED. THER EFORE, COCHIN CO. PVT. LTD. (SUPRA) IS ALSO NOT APPLICABLE, ON FACTS OF T HIS CASE. 23. LIKEWISE, THE DECISION IN THE CASE CIT, NEW DE LHI VS. M/S ELY LILLY & CO. (INDIA) PVT. LTD., RENDERED BY THE HONBLE SU PREME COURT IN CIVIL APPEAL NO. 5114/2007, VIDE ORDER DATED 25.3.09, IS ALSO NOT OF ANY HELP WHATSOEVER TO THE DEPARTMENT. IT NOWHERE ENVISAGES THAT WHERE, AS IN THE PRESENT CASE, NO LIVE NEXUS IS ESTABLISHED BETWEEN THE PERSON SOUGHT TO BE TREATED AS AN AGENT IN RELATION TO * A RESIDENT AND THE NON-RESIDENT, THE PERSON CAN STILL BE INCLUDED WITHIN THE MEANING OF THE TER M AGENT, AS PROVIDED IN SECTION 163(1)(C) OF THE ACT. AS STATED BY THE LD. COUNSEL FOR PRIDE FORAMER (AS NOTED HEREINABOVE), IN I.T.A. NOS.4069, 4070, 4 071, 4078 & 4080, NO TAX IS PAYABLE, SINCE IT WAS DELETED BY THE CIT(A). IN 14 CASES, THE ASSESSMENT WAS AT NIL TAX, SHOWING THAT NO TAX WAS PAYABLE IF NO TAX IS PAYABLE, UNDENIABLY, THERE REMAINS NO CASE FOR AGEN CY. 24. IN VIEW OF THE ABOVE, THE GRIEVANCE OF PRIDE FO RAMER AGAINST BEING TREATED AS AN AGENT OF THE EXPATRIATE PERSONNEL UND ER SECTION 163 OF THE ACT IS FOUND TO BE OF MERIT AND IT IS ACCEPTED AS SUCH. A CCORDINGLY, IT IS HELD THAT PRIDE FORAMER HAS ERRONEOUSLY BEEN TREATED AS AN AG ENT OF THE EXPATRIATE I.T.A.NOS.346,4069-4081/DEL./2007 & 4051, 4054 & 4055/D/2007 (A.Y. : 2002-03) 24 PERSONNEL. THE ORDER OF THE LD. COMMISSIONER OF IN COME-TAX (APPEALS), THEREFORE, IS QUASHED ON THIS SCORE ITSELF. THAT B EING SO, THE OTHER ISSUES RAISED ARE NOT REQUIRED TO BE GONE INTO AND WE ARE NOT DOING SO. 25. THE ISSUE REMAINING THE SAME IN ALL THESE APPEA LS, OUR ABOVE OBSERVATION WILL APPLY, MUTATUS MUTANDIS, TO ALL TH E APPEALS. 26. IN THE RESULT, ALL THE APPEALS FILED BY PRIDE F ORAMER ARE ALLOWED AND THOSE OF THE DEPARTMENT ARE DISMISSED. 27. ORDER PRONOUNCED IN OPEN COURT ON 30/10/2009. (G.E. VEERABHADRAPPA) (A.D. JAIN ) VICE PRESIDENT JUDICIAL MEMBER DATED: OCT. 30, 2009. *SKB* COPIES FORWARDED TO:- 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT 4. THE CIT (A), DEHRADUN 5. THE DR, ITAT, LOKNAYAK BHAWAN, KHAN MARKET, NEW DELHI AR/ITAT I.T.A.NOS.346,4069-4081/DEL./2007 & 4051, 4054 & 4055/D/2007 (A.Y. : 2002-03) 25 I.T.A.NOS.346,4069-4081/DEL./2007 & 4051, 4054 & 4055/D/2007 (A.Y. : 2002-03) 26
